League Files Friend-of-the-Court Brief in Constitutional Challenge to Pension Reform

February 22, 2018

The League on Wednesday, Feb. 21 filed a friend-of-the-court brief in the California Supreme Court in Cal Fire Local 2881 v. California Public Employees’ Retirement System.

In this brief, the League is in support of the state’s argument that the elimination of the option under the Public Employees’ Pension Reform Act (PEPRA) to purchase “airtime” did not result in an unconstitutional impairment of contract.

Background

The state enacted PEPRA in 2012, which among other things eliminated the option for employees enrolled in CalPERS to purchase up to five years of service credits to add to their pension benefit. This is commonly referred to as “airtime.”

After the state implemented PEPRA, Cal Fire Local 2881 sued arguing that the airtime benefit was a vested contractual right of those employees who were employed prior to the 2013 implementation date for PEPRA. Therefore, under the so-called “California Rule” of vested pension rights previously articulated by the California Supreme Court, eliminating the airtime benefit was an unconstitutional impairment of contract unless the State offered employees a comparable new pension benefit to replace it, which PEPRA does not do.

The lower courts disagreed and held that no comparable new benefit was required and that the elimination of the airtime benefit did not affect the employees’ right to a substantial and reasonable pension. The California Supreme Court granted review in 2017.

For a pension or other retirement benefit to become a vested contractual right, there must be unmistakable evidence that the legislative body intended to create a private right of a contractual nature.

Even contractually-vested pension or other retirement benefits can be modified without providing a comparable new advantage, so long as the modifications are reasonable.

Modifications that are made to prospective benefits (i.e. to benefits attached to time not yet worked as opposed to time already worked) are reasonable so long as they bear a “material relation to the theory of a pension system and its successful operation” and leave employees with a “substantial and reasonable” pension. By contrast, benefits already earned by employees through completed service, and benefits paid to retirees, are subject to a higher standard of review if the legislative body seeks to modify them.

An economic emergency is not required in order to modify prospective benefits.

The League’s brief also extensively discusses the current fiscal hardships that cities are facing due to the unsustainable rise in pension costs, including citing extensively to the League’s Retirement System Sustainability Study and Findings that published in January.

Next Steps

The League hopes that this discussion will help the Court understand the need to move this case forward quickly in order to provide the state and local governments with the flexibility to sustainably manage their pension obligations.

The timeline for when the Supreme Court will issue a decision in this case will depend on when it sets oral argument. The Rules of Court do not impose any timeline under which the Court must set an oral argument, but once oral argument is held and the Court takes the case under submission, it has 90 days within which to issue an opinion.

The League would like to thank Jonathan Holtzman and Linda Ross with Renne Sloan Holtzman Sakai LLP for authoring the League’s friend-of-the-court brief.